Having freshly announced the purchase of China Unicom’s CDMA network, China Telecom chairman and CEO Wang Xiaochu says that the company will migrate to LTE in 2 to 3 years' time. Under the deal announced in a Hong Kong press conference last night, China Telecom’s listed arm will purchase the business from Unicom’s listed entity on the Hong Kong Stock Exchange while state-owned parent China Telecom Group will purchase the infrastructure.
Wang said that the company will initially focus on rolling out EV-DO Rev A in key cities because the technology’s download speeds makes it ideal for mobile data services. “In 2 to 3 years' time, all networks, both GSM and CDMA, will migrate to LTE,” Wang said.
The announcement by China Telecom to support LTE represents one of the last major CDMA operators to abandon the standard-specific migration path for the technology to Ultra Mobile Broadband and follows similar announcements from Verizon and KDDI. US CDMA operator Sprint has abandoned UMB in favour of mobile WiMAX as its 4G platform.
Wang confirmed the government’s framework for the allocation of three 3G licenses later this year, but did not comment on whether or not Telecom will be required to roll out 3G services using CDMA.
UNICOM NETCOM MERGER: The deal came as China Unicom and China Netcom announced details of their merger, which includes the disposal of Unicom’s CDMA network to China Telecom and the integration of the two listed entities of Unicom and Netcom, in which Netcom will become a “wholly-owned subsidiary of Unicom.”
The merger is expected to be completed by the 4th quarter of this year and result in an enlarged company that will be the number two competitive carrier in both mobile and fixed services. In the fixed market, the new group’s market share at 30% is half of China Telecom’s 60% while in the mobile space, China Mobile dominates the market with 69% while the Netcom-Unicom group will hold 23% of market after the disposal of the CDMA asset.
When compared against its competitors on a subscriber and revenue basis, the figures tells a different story, with the group coming in last out of the three players. The enlarged company will have a subscriber base of 251.2 million, slightly behind China Telecom with 256 million and far lagging China Mobile’s 369.3 million. In revenue terms, the merged entity has a combined revenue of RMB145.3 billion, also just behind China Telecom’s RMB178.7 billion and less than half of market leader China Mobile with RMB357 billion.
In a press conference yesterday hosted by the heads of the two operators, the companies announced they will merge their respective listed vehicles in a share substitution scheme. Unicom will issue new shares for existing Netcom shares. Each China Netcom shares on the Stock Exchange of Hong Kong will be entitled to 1.508 Unicom shares while holders of every Netcom Amercian depository shares will be entitled to exchange them for 3.016 new Unicom ADS, the companies said. The proposal is subject to the approval of the shareholders of the two companies.
The merged entity is restricted to the assets of the listed entities and does not include a merger of the state-owned parent companies, Chang Xiaobing, CEO and chairman of China Unicom said.The new merged entity will have an estimated market capitalization of HK$439.2 billion (US$1 = HK$7.78). The companies did not reveal a name for the new merged group.According to the companies, the two foreign carriers with shares in the two Chinese operators, SK Telecom (Unicom) and Telefonica (Netcom) have expressed their support for the merger and remain shareholders of the merged entity. The merger will not impact China Netcom’s shareholding in PCCW as those shares are held by the parent company, which is not part of the transaction.
TELECOM UNICOM DEAL: Meanwhile, China Unicom and China Telecom announced that Telecom will pay a total of RMB100 million for Unicom’s CDMA business. The transaction includes an RMB43.8 billion deal in which the listed arm of China Telecom will purchase the CDMA customers and operations of the listed China Unicom entity. The network infrastructure and other related assets will be purchased by state-owned China Telecom group from an unlisted subsidiary, Unicom New Horizon, under Unicom's parent for an additional RMB66.2 billion.
The cash raised by the CDMA sale will be invested to boosts the capabilities of the GSM network, which continues to lag behind the market, Chang said.China Telecom also held its own press conference on the deal last night. According to China Telecom executives, the transaction price is subject to adjustment that 1H2008 revenues for the CDMA business do not decrease more than 2% versus the same period in 2007. The transaction is expected to be finalised by the July-August time frame. The conditions will then be sent to China Telecom shareholders within 45 days after the terms are finalized with the actual transfer of business operations 'within 3 days' following the approval of the shareholders.Wang Xiaochu, chairman & CEO of China Telecom points to China Telecom’s existing subscriber base as a huge market opportunity for the CDMA business because customers want a one-stop service for both fixed and mobile communications.
Tony Chan in Hong Kong
